Bank of England Keeps Interest Rate at 3.75% Amid Higher Inflation

The Bank of England's Monetary Policy Committee (MPC) maintained the main interest rate at 3.75% despite higher inflation in the UK, which has risen to a five-month high of 3.1%. The decision was made with a majority vote of 6-3, with three members advocating for an increase by 0.25 percentage points to 4%. Protracted conflict in the Middle East has led to increased crude and refined energy prices, which remain volatile and higher than pre-conflict levels.

The MPC aims to ensure that inflation returns to its target of 2% sustainably as the economy adjusts to the energy shock. However, there is a risk of second-round effects in price and wage-setting if higher energy prices persist or become more volatile. Activity has been affected by the energy crisis, with the UK CPI inflation forecasted to rise further over coming quarters.

The Bank Executive has decided to retain £222 billion of gilts maturing before 2035 to maturity and £120 billion of the longest-dated gils in the Asset Purchase Facility. The MPC's decision to reduce the stock of UK government bond purchases held for monetary policy purposes to zero will be implemented through annual sales of £20 billion alongside maturing gilts.